Snap Stock Plunges as User Growth Slows, Revenue Misses

"One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback," Snap CEO Evan Spiegel said in a statement.

Snapchat is getting an overhaul.

Evan Spiegel, CEO of the messaging app's parent company Snap Inc., revealed Tuesday that Snapchat will be redesigned to make it easier for a broader base of people to use.

"One thing that we have heard over the years is that Snapchat is difficult to understand or hard to use, and our team has been working on responding to this feedback," Spiegel said in a series of prepared remarks released as part of Snap's third-quarter earnings report. "There is a strong likelihood that the redesign of our application will be disruptive to our business in the short term, and we don't yet know how the behavior of our community will change when they begin to use our updated application. We're willing to take that risk for what we believe are substantial long-term benefits to our business."

Snapchat has struggled over the last year to continue to grow its user base at the same clip as its early years. During the third quarter, it added just 4.5 million daily active users, down from its 7 million DAU additions during the second quarter. In the third quarter of 2016, its user growth rate was at 48 percent. A year later, that rate has dropped to 18 percent.

The company's stock plunged nearly 20 percent (eventually settling down about 16 percent) on Tuesday on the user growth slowdown and much lower quarterly revenue than expected.

Snap brought in $208 million in revenue during the quarter, up 62 percent from the same period last year but significantly less than the $237 million that Wall Street was expecting. It also reported a net loss of 36 cents per share, wider than the loss of 32 cents per share that analysts were anticipating.

Spiegel noted in his prepared remarks that the revenue miss was the result of the company's shift to an automated advertising platform, which caused a drop in CPMs. "I am grateful that this transition is nearly behind us, and look forward to the many advantages our programmatic auction brings to our advertising business in terms of scale and ROI," he said.

As part of the redesign, Snapchat will make it easier to discover the content that it and its partners produce for the Discover platform. Spiegel said that there "is a big opportunity to surface some of this content in a personalized and more relevant way." That will include tailoring Snapchat Stories for each of the app's 178 million users.

The Snap CEO also acknowledged that Snapchat has done little to boost the creator community that has built up on its platform and said that the company will build distribution and monetization opportunities for those creators in 2018.

The changes teased on Tuesday would represent the largest redesign for Snapchat in its history. But Spiegel, speaking on a conference call with investor, said that the app is still centered on its core feature, facilitating communication between friends. "It remains the most important thing to Snap," he added.

Another area where Snap struggled during the third quarter was in its sales of Spectacles, the smart glasses that allow people to take video and upload it to Snapchat. Snap has recorded a $39.9 million write-down on the product.

In October, Spiegel admitted that the company has faced some hurdles since going public in March. "One of the things I underestimated was how much more important communication becomes," he told the audience at the Vanity Fair New Establishment Summit, adding that he's learning "how to best communicate the Snap story."

Snap's shares fell sharply in the months following its IPO, closing as low as $11.83 on Aug. 11. But the stock has rebounded in recent weeks. Shares closed Tuesday up nearly 2 percent to $15.11, still down 11 percent from Snap's $17-per-share IPO price.

When asked why Snap was making so many changes just eight months after its IPO, Spiegel responded, "We're not afraid to make changes."